Singapore 2012 GDP Grew 1.2% as Recession Seen in Second Half

By Sharon Chen -
Dec 31, 2012

Singapore’s expansion eased to a three-year low in 2012, according to government estimates that suggest the economy probably contracted in the fourth quarter, slipping into its first recession since 2009.

Gross domestic product rose 1.2 percent in 2012, Prime Minister Lee Hsien Loong said in his New Year message released yesterday. The growth rate he gave implies a contraction last quarter from the previous three months, said Michael Wan, an economist at Credit Suisse Group AG.

A government push to limit the intake of foreign labor has led to a growing shortage of workers and higher business costs, contributing to price pressures that led Singapore to tighten policy last year by allowing faster currency gains. Hiring constraints, coupled with weak growth in advanced nations, damped the 2012 expansion, Lee said, and the export-dependent economy remains at risk from an uneven U.S. recovery and Europe’s protracted sovereign-debt crisis.

“It’s a disappointing number,” Wan said. “We’ve seen huge weakness in the manufacturing sector for two keys reasons. One is the high exchange rate, partly because of our policy to use the exchange rate to curb inflation, and the second reason is our domestic policies when it comes to foreign workers.”

The Singapore Trade Ministry will release fourth-quarter GDP figures at 8 a.m. tomorrow. If its numbers confirm the economy shrank in the three months through December, it would be the second consecutive quarter-on-quarter contraction, meeting the definition of a recession.

Missed Estimates

GDP shrank 5.9 percent in the third quarter from the previous three months, the government said in November. Five of 11 economists predicted a fourth-quarter contraction in a Bloomberg News survey, where the median was for an annualized expansion of 1.6 percent.

The government earlier estimated GDP would expand about 1.5 percent in 2012 and Lee reiterated a forecast for the economy to grow 1 percent to 3 percent in 2013. The island is in a “new phase” of growth where it must adjust to a slower expansion than it has become accustomed to, he said yesterday.

“Slower growth does not mean we will face less pressure,” Lee, 60, said. “Companies especially must put more effort into raising productivity. The government will lend them support to do so. Only through higher productivity can we sustain real wage increases for Singaporeans.”

Price Gains

Consumer price gains have averaged 4.9 percent since the start of 2011, more than double the 1.9 percent average in the past two decades. The Monetary Authority of Singapore forecasts an inflation rate higher than 4.5 percent in 2012 and in a 3.5 percent-to-4.5 percent range this year.

“MAS faces twin challenges of stubborn inflation and sluggish growth,” said Wai Ho Leong, a Singapore-based economist at Barclays Plc. The central bank may “continue to maintain a gradual appreciation stance, even in an environment of below-trend growth,” he said.

The third-best performing Asian currency last year had failed to stem inflation in a nation that uses its exchange rate rather than borrowing costs to manage prices. Instead, the Singapore dollar’s 6.2 percent rise in 2012 may be weighing on the manufacturing industry, said Kit Wei Zheng, an economist at Citigroup Inc., hurting an economy where total exports are equivalent to more than one-and-a-half times its GDP.

Export Forecasts

Non-oil domestic exports were forecast by the government to rise 2 percent to 3 percent in 2012. It predicts overseas shipments will climb 2 percent to 4 percent in 2013.

Ranked by the World Bank as the easiest place to do business, Singapore had cut taxes in past years to spur investment. Rolls-Royce Holdings Plc, Europe’s largest maker of commercial aircraft and ship engines, opened a S$700 million ($573 million) manufacturing and assembly plant in February.

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to one of the world’s busiest container ports, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to reduce reliance on exports.

There is a limit to how far Singapore can use the exchange- rate policy to contain inflation, central bank Managing Director Ravi Menon said in July. Still, the measure remains the broadest and most effective tool, even as it takes longer than usual to moderate price gains, he said.

Easing Hurdle

“The hurdle for easing remains high for now,” said Citigroup’s Kit, who previously worked at the central bank. Inflation will probably “stay elevated through the first quarter” and economic growth is likely to be within the official forecast in 2013, he said.

Policy actions differed among Asian economies last year as some contend with persistent price pressures, while others seek to bolster expansion. Thailand and the Philippines lowered interest rates, while Indonesia and Malaysia kept their benchmarks unchanged at recent meetings.

Singapore’s GDP shrank for four consecutive quarters through the first three months of 2009 as the country suffered its deepest recession since independence in 1965. Thousands of workers were laid off as the global economy slumped and the government gave cash handouts to companies to help stem losses.

Last year’s slowdown didn’t stop employers from adding to payrolls. The jobless rate was at a six-quarter low of 1.9 percent in the period ended September.

“Persistent tightness in the labor market will support wage increases in 2013, some of which will continue to be passed through to consumer prices,” the Trade Ministry and central bank said on Dec. 24. “Inflation will remain elevated” this quarter, they said.